Pa. lawmakers cling to pensions after pushing new state workers to adopt 401(k)-style plans

“They talk the talk but they don’t walk the walk."

I cover state government and basic and higher education policy. Reach me at JMurphy@pennlive.com or at 717-255-4106 or 717-255-4106.

(Harrisburg) — For years, Pennsylvania lawmakers wanted state government and school employees’ pension plans to look more like the 401(k)-style plans in the private sector.

But it’s pretty clear most didn’t want that kind of retirement plan for themselves.

A state law passed in 2017 to revamp the pension plans for future state workers and school employees. That law included a provision that gave lawmakers until the end of March of this year to decide whether to switch from the traditional guaranteed pension plan into one of the new plan options.

As of April 1, only 20 of the 218 lawmakers who participated in the state pension system at that time chose the 401(k)-style plan option, according to a PennLive analysis. PennLive obtained records from the State Employees’ Retirement System through a Right-to-Know request.

The remaining 198 – including 43 freshmen lawmakers who signed up for pension benefits – elected the traditional guaranteed pension plan.

Barry Shutt isn’t surprised that lawmakers opted to forgo the new plan options and stick with their traditional pensions.

Shutt, a retired state employee turned political activist, spends days at the Capitol sitting beside his pension liability clock that tracks the rising debt of the public pension systems by the second. The clock was climbing toward $70.4 billion last week.

“They talk the talk but they don’t walk the walk,” Shutt said, while sitting next to his clock recently. “What they want everyone else to do, they don’t want to do themselves. That’s typical of this place. We make the rules for everyone else that we don’t follow.”

The modification to the two statewide public pension systems was viewed as necessary to curb the soaring cost of the pension plans on school districts and reduce the risk to the commonwealth in the event of a future recession or stock market crash. In signing the law, Gov. Tom Wolf, who declines pension benefits, hailed it as “real meaningful pension reform.”

Most new hires in state government, including lawmakers, who started on or after Jan. 1 no longer can choose a traditional guaranteed pension plan. Instead, they are given the choice of a 401(k)-style plan or one of two hybrid plans that combine a 401(k)-style plan with a traditional pension plan. New employees in school districts who start on or after July 1 also will be limited to those options.

None of the lawmakers picked either of the hybrid options.

For the record, 32 House and Senate members, as of April 1, were listed as not participating in the pension system.

‘Medicine’ that doesn’t taste good

Lawmakers set out to restructure the plan options offered by the two statewide public pension systems in the face of the systems’ roughly $70 billion unfunded liability.

That gigantic debt – more than twice the state’s general fund budget – is the difference between pension benefits promised to current employees and retirees and money the systems currently have available to pay for those benefits.

The debt has swelled over time as a result of the lucrative and unfunded expansion to the pension benefit formula in 2001, approved by that year’s Legislature and then-Gov. Tom Ridge. Inadequate contributions made by the commonwealth and school districts along the way and turbulence in the financial market didn’t help matters.

The 2017 pension reform law, which created the new retirement saving options for future hires, did nothing to pay down that debt, but did attempt to stop adding to it.

“This is the medicine that will move us forward in a way that future Legislatures will be proud of,” said Senate Majority Leader Jake Corman, a six-term Centre County Republican who was the head cheerleader for the pension legislation in 2017.

Corman opted to remain in the traditional pension plan. He said he made that choice since he is closer to the end of his career than the beginning.

“It did not make sense for me to start over with a new retirement plan,” Corman said. “The vast majority of the other state employees in the same situation made the same decision.”

He’s right. Only 70 of the more than 103,000 state government workers who were already in the traditional pension plan switched to one of the new plans. Sixty-five of those who switched chose the 401(k)-style option.

The traditional pension plan – often referred to as a defined benefit plan – was seen as placing too much risk on the commonwealth to pay for the cost of benefits, if investment earnings came in lower than projected.

The new pension options, with their inclusion of a 401(k)-style plan, were sought to lower the risk to the commonwealth and still provide a fair retirement savings plan for employees.

Lawmakers in both parties overwhelmingly voted for the legislation to reform the pension systems. The House passed it by a 143-53 vote and the Senate approved the legislation, 40-9.

The “yes” votes came predominantly from the Republican legislators in both chambers who saw it as a forward-looking cost saver to the commonwealth and more like the retirement savings plans offered in the private sector.

The “no” votes came from lawmakers, all of whom chose to remain in the traditional pension plan, because some feared the new pension options could further destabilize the financial condition of the retirement systems. Some opposed it because it didn’t go far enough to address the pension debt. Others said it took too long to provide relief to school districts with their pension costs. And still others saw value in preserving the defined benefit plan.

Former state Rep. John Kennedy, who was a maverick when he served in the Legislature in the 1980s by refusing pension benefits and now works to elect lawmakers who will do the same, called lawmakers who voted for that pension bill yet remained in the traditional plan “evidence of hypocrisy within the process among the individual members.”

“If you didn’t act on the intent of the legislation that you voted for and jump into a plan that would give you less, then what does that tell the 18 year old out there? Does that set an example for them that you are interested in their welfare?” Kennedy said. “Probably not.”

PennLive

Rep. Seth Grove, R-York County, shared a photo of the form he filled out to switch to the 401(k)-style pension plan option.

Choosing a pension plan

The two highest elected officers in the House and Senate – House Speaker Mike Turzai, R-Allegheny County, and Senate President Pro Tempore Joe Scarnati, R-Jefferson County – were “yes” votes on the pension reform law. Both opted to switch to the 401(k)-style plan.

Turzai, who has served in the House since 2001, said he supported the legislation because he favors a plan that moved public sector employees into a retirement savings plan that’s more like what the private sector has.

“Myself, I just went into the 401(k)-type plan, the defined contribution type plan,” he said. “I just felt that advocating for a 401(k) plan and having been in a 401(k) plan in the private sector and my wife having been in a 401(k) plan in the private sector, that was the best choice for me.”

Scarnati, who is in his 18th year in the Senate, said, “I’ve been in business all my life and I treated my decisions here like I would in my own business. I feel responsible to the taxpayers and somewhat to my own beliefs.”

House Republican Leader Bryan Cutler of Lancaster County, who is in the 12th year of his legislative career, also voted for the pension bill. Like Turzai and Scarnati, he chose to switch to the 401(k)-style option.

“I supported the measure, and I’m using the defined contribution plan, because it reflects my continued commitment to supporting good government initiatives,” Cutler said. “I also think options are important, especially for employees who serve the state for less than ten years [when they become vested in the traditional plan.] This plan allows those employees to leave with some retirement benefits, earned in a way that is respectful to the challenges facing our system.”

As for the other leaders, Senate Democratic Leader Jay Costa, of Allegheny County, who has served in the Senate since 1996, and House Democratic Leader Frank Dermody, also all of Allegheny County, who has put in 28 years of legislative service, joined Corman in supporting the pension reform law. But like Corman, they chose to remain in the traditional plan.

“Everybody made a personal decision based on where they are at,” Scarnati said.

Turzai said it was a provision the Senate put in the bill that gave the option of staying in the traditional plan. He brushed off answering whether any guidance was given to House GOP members about choosing their own pension option.

PennLive

Political activist Barry Shutt’s clock in the Capitol cafeteria tracks the statewide pension systems’ debt. That debt played a role in lawmakers’ decision to pass a pension reform bill that moves the system away from the traditional guaranteed pension plan. Most state lawmakers, however, chose to shun the new options for themselves and remain in the traditional pension plan.

Matt Brouillette, president and CEO of Commonwealth Partners Chamber of Entrepreneurs, applauded Scarnati, Turzai, Cutler, and the 17 other lawmakers who led by example with their decision to switch to the 401(k)-style plan. He would have preferred to see a pension reform plan that offered only that option.

“Sadly, too many of their colleagues who heralded Pennsylvania’s pension reform as historic, which it was, decided not to participate in a plan which saves taxpayer dollars, offers workers more flexibility, and begins to remove some of the public pension burden from hardworking Pennsylvanians,” he said.

Senate Appropriations Committee Chairman Pat Browne, R-Lehigh County, said he did what he expected the more senior members and employees would do: Remain in the old plan.

As a 24-year veteran lawmaker who played a dominant role in crafting the pension reform bill and voted for it, Browne said senior employees like himself would not fare as well in one of the newer pension plans as junior employees might.

A 401(k)-style plan requires time to build up the earnings, whereas the pension systems’ traditional plan is based on final average salary, which used to be the average of an employees’ three highest years’ salary. The pension reform law changed that to the average of the five highest years’ salary.

With more years of government service behind him than in front of him, Browne said it would be unlikely to replicate the benefits he would get under the old plan in one of the newer ones.

“So the expectation on more senior people in our workforce – and that’s across the board – to make that choice is a lot less,” he said. “That’s part of the thought process people went through.”

Rep. Jim Cox, R-Berks County, touted the House’s passage in February of a pension-related bill that seeks to trim the roster of people who can participate in the state employees’ pension system by cutting off eligibility to future Susquehanna River Basin Commission employees.

“These are taxpayers’ dollars and we should try to save every one we can,” 12-year veteran lawmaker Cox said in a news release about that legislation.

Cox, who voted for the pension reform bill, opted to stay in the traditional pension plan.

According to the retirement system records, the same goes for House Appropriations Committee Chairman Stan Saylor, R-York County; House Democratic Appropriations Committee Chairman Matt Bradford of Montgomery County; Rep. Mike Tobash, R-Schuylkill County (despite saying last year he would probably opt into one of the new plans); Rep. Dan Frankel, D-Allegheny County; Sen. John Gordner, R-Columbia County; Sen. Judy Schwank, D-Berks County; Sen. Ryan Aument, R-Lancaster County; and Sen. John Yudichak, D-Luzerne County, to name a few.

The reasons given by lawmakers interviewed about why they chose to remain in the traditional plan despite voting for the pension reform bill often centered around what they considered best for their personal situation or where they were in their legislative career.

Four-term incumbent Rep. Patty Kim, D-Harrisburg, was the only Democrat who voted for the pension reform bill and switched her own retirement savings option to the new 401(k)-style plan.

“I viewed the pension reform as the Legislature’s effort to make the state retirement system more sustainable and closer to what the average Pennsylvania taxpayer has available to them,” Kim said. “I supported that so I thought I should follow through and be a participant in that new system.”

Rep. Seth Grove, R-York County, likewise, voted for the pension reform bill and switched to the 401(k)-style plan. He offered a myriad of reasons for making that change, including one that addresses a common public perception of lawmakers.

“Harrisburg has a ‘greed’ reputation,” the five-term incumbent lawmaker said. “Only way to get rid of it is show you aren’t greedy.”